Bank Indonesia Keeps Policy Rate Unchanged At 3.5%, Retains Accommodative Stand: ING

Bank Indonesia has kept key policy rate unchangedAmid sluggish global economic growth Bank Indonesia (BI) on Tuesday kept its reverse repurchase rate unchanged at 3.5 per cent.The Indonesian central bank also lowered its growth projection to 4.5 to 5.3 per cent compared to the earlier projection which was in the range of 4.7 per cent to 5.5 per cent.At the same time though, BI still expects inflation to be “manageable” this year with headline inflation to settle within target of 2 per cent to 4 per cent.Slowing growth, alongside still manageable inflation, gave BI the leeway to keep rates unchanged even as global central banks tighten policy, ING’s senior economist Nicholas Mapa said in a research paper.    The economist further said that a shift in tone was expected in today BI’s policy meeting, however what was seen was the central bank is inclined at retaining accommodation amid growth concerns.One development that could have helped convince monetary authorities to stay dovish was the revised projection for the current account balance, now expected to see a slight improvement as exports benefit from surging commodity prices, Mr Mapa further said in the research paper. He noted that the Indonesian Rupiah gets support from an improved external outlook in the near future, which could somewhat offset imported inflation pressureHe also expected that BI Governor Perry Warjiyo will be watchful towards any buildup in inflationary pressure, despite the dovish stand seen in today’s meeting.The BI Governor had earlier said that a decision to tighten the policy would be influenced by core inflationary movement. However with inflation rising last March and showing continuous signs of rising further (from the 2.4 per cent mark), the central bank may have to change its stance in the next meetings.Mr Mapa said that core inflation may rise to 3 per cent in the next few months, which may force BI to tighten policy rates amid slowing growth, if inflation threatens to touch the upper tolerance limit set by the bank.



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